In multistage carcinogenesis of the mouse epidermis, premalignant progression is characterized by increasing genomic instability such as trisomy of chromosome 6 and 7, aneuploidy, loss of heterozygosity and amplification of activated c-ras alleles. Our earlier studies have shown that a critical determinant of the altered genomic stability and premalignant progression in this model is transforming growth factorb1 (TGFb1). Loss of TGFb1 expression is an early in vivo event which distinguishes benign squamous papillomas that are precursor lesions to squamous cell carcinomas from benign papillomas that undergo limited progression. To understand how loss of TGFb signaling accelerates v-ras initiated carcinogenesis we have examined the in vitro effects of v-ras on keratinocytes that are defective in TGFb signaling due to a targeted null mutation for TGFb1, null mutation for Smad3 or that overexpress Smad7 through retroviral or adenoviral transduction. Following transduction with v-ras, wildtype keratinocytes undergo limited hyperproliferation followed by a growth arrest and senescence. However, keratinocytes that are null for TGF-b or Smad3 or overexpress Smad7 have a reduced senescence phenotype and rapidly become immortal. Skin grafts of Smad3 null/v-ras and Smad7/v-ras keratinocytes form squamous cell carcinomas while control genotypes remain benign papillomas. The block to the v-ras associated growth arrest is correlated with an inability to upregulate the cyclin dependent kinase inhibitors p15ink4b and p16ink4a. Analysis of keratinocytes infected with Smad expressing adenoviruses and Smad 3 null keratinocytes points to an important role for Smad 3 but not Smad 2 or Smad 4 in senescence and the induction of p15 and p16. In addition Smad independent pathways for induction of p16 by TGF-b have been uncovered. These results provide a new mechanistic framework for understanding the actions of TGFb as a tumor suppressor in human cancer.